Telcos may get two more months for FDI compliance

The Department of Telecom (DoT) has proposed to give an additional two months' time, till December 3, to telecom service providers for adhering to the revised guidelines for enhancing FDI to 74 per cent from the existing 49 per cent.

The proposal is contained in a draft cabinet note that seeks to amend the Press Note 5 of November 3, 2005 and will be placed before the Cabinet shortly.

Press Note 5 laid down onerous conditions for companies wanting to enhance FDI. According to the proposed revision, telecom service companies will no longer be able to transfer shares or convertible debentures held by a person residing outside India to any other person overseas without the mandatory and prior approval of the Foreign Investment Promotion Board.

The share transfer clause will be invoked in the event of any such "direct or indirect" arrangement resulting in the new shareholder being entitled to a place on a company board.

The revision also emphasises that while shares held by Indian public sector banks and financial institutions in a telecom firm will be treated as "Indian" holding, this shareholding will in no case be less than 26 per cent.

Even as FDI up to 49 per cent will be under the automatic route, an FIPB approval will continue to be mandatory for going beyond this limit, as is the present practice.

However, while approving the investment proposals, FIPB will also take care that the investment is not coming from "unfriendly countries and entities".

Some other conditions are sought to be enforced through an amendment in the licence agreements irrespective of the FDI level.

These include a "non-obstante" clause (literally meaning notwithstanding, is used to express the sanctioned violation of existing law by the sovereign) that will empower DoT to cancel a licence under certain circumstances.

While remote access is being allowed (access to an Indian network from overseas to carry out on-line repair), no operator will be able to transfer details of its infrastructure to persons outside India.